The Securities & Exchange Board of India said on Tuesday that companies will have to reserve 15 per cent in a share buyback through a tender offer for retail investors - those investors whose shares are worth less than Rs2 lakh.
"Fifteen percent of the number of securities which a company proposes to buy back (through tender offer) or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders," SEBI said in its revised regulations for 2012.
Last year, the regulator had raised the investment limit for retail investors in initial public offerings to Rs2 lakh and now it has extended the same definition to buy back offers as well.
A share buyback is one of the ways companies use their surplus funds. At present, buyback of shares can be done through either the tender offer route or open market operations.
The buyback process through the tender offer route can be completed within 41 days of the board approval, under the new guidelines.
A company would have to publish advertisements in newspapers within two days after securing board approval for the buyback and it has to file the offer document with SEBI within five days after that.